Stratton's Independence v. Dines

• Decision Date: 06 January 1904
• Docket Number: 4,400.
• Citation: 126 F. 968
• Parties: STRATTON'S INDEPENDENCE, Limited v. DINES et al.
• Court: U.S. District Court — District of Colorado

126 F. 968

STRATTON'S INDEPENDENCE, Limited v. DINES et al.

No. 4,400.

United States Circuit Court, D. Colorado.

January 6, 1904

C. J Hughes, Jr., Thomas, Bryant & Lee (Guggenheim, Untermyer &amp Marshall, of counsel), for complainant.

McAllister & Gandy, Dines & Whitted, Macbeth & May, and Wolcott, Vaile &amp Waterman, for defendants.

RINER District Judge.

This case is before the court upon a demurrer to the second, third, fourth, fifth, and sixth defenses set out in defendant's answer. To clearly understand the questions presented by the demurrer to these defenses, it will be necessary to notice very briefly the allegations of the first cause of action set out in the complaint (Judge Sanborn having sustained a demurrer to the second cause of action), which are, in substance:

First. That the plaintiff is a corporation duly organized and existing under and by virtue of the laws of the kingdom of Great Britain, and entitled to do business in the state of Colorado by virtue of the compliance with the laws of the state relating to foreign corporations; that the defendants, and each of them, are citizens and residents of Colorado; that the amount in controversy, exclusive of interest and costs, exceeds the sum of $2,000.

Second. That on the 2nd day of February, 1899, Winfield Scott Stratton, of the county of El Paso and state of Colorado, was the owner of certain mining property therein described, located in the Cripple Creek Mining District, in what was then El Paso county, but which has since become Teller county by legislative enactment.

Third. That the plaintiff is an incorporated company, duly organized under the companies acts of the kingdom of Great Britain, and was duly registered as a limited company under said acts on the 29th day of April, 1899, with the objects stated in its registration, which are the regulations of the company, and among the objects for which the company was incorporated is the purpose of buying, selling, and dealing in mining properties in the state of Colorado; that the company was organized and incorporated for the purpose of purchasing, owning, and working the mining property described in the complaint, belonging to Winfield Scott Stratton, who was one of the promoters and incorporators of the plaintiff company.

Fourth. That, prior to the organization of the plaintiff company, Stratton, through himself and his agents, represented to the other promoters and proposed organizers of the plaintiff company that the mining property described in the complaint had exposed and in sight ore bodies to the value of $7,000,000, and thereby was reasonably worth the sum of $10,000,000; that if the promoters and organizers, together with himself, should organize the plaintiff company, he would cause the property to be conveyed to it in consideration of his receiving in cash from the company the sum of $10,000,000. And after said company had been completely organized, and had been registered as a limited company under the companies acts of the kingdom of Great Britain, Stratton personally and through his agents further represented to the officers, agents, directors, and stockholders of the plaintiff company that the property described in the complaint had exposed and in sight ore bodies to the value of $7,000,000, and thereby was reasonably worth the sum of $10,000,000. That, acting upon these representations, fully believing therein, and relying upon the same to be true and correct, the promoters of the company caused the same to be organized, and, after the company had been organized, the officers and directors of the company paid to Stratton the sum of $10,000,000, in consideration of which Stratton, on or about the 23d of May, 1899, conveyed to the company all of the mining property described in the complaint, and the same was received by the plaintiff company in consideration of its paying to Stratton the sum of $10,000,000. That thereupon the company entered into possession of the property, and has been in possession ever since that time.

Fifth. At the time Stratton represented to the promoters and organizers of the plaintiff company, and, after the company had been incorporated and registered, represented to the officers, agents, directors, and stockholders thereof, that the property described in the complaint had exposed and in sight ore bodies to the value of $7,000,000, and thereby was reasonably worth the full sum of $10,000,000, he well knew that said representations were wholly false, and well knew that the property had not exposed and in sight ore bodies to the value of $7,000,000, and was not worth the sum of $10,000,000, and that in truth and in fact the property had exposed and in sight ore bodies to the value of not more than $2,000,000, and was worth not more than $4,000,000; that Stratton knew that the promoters and organizers of the company, before its organization, and the officers, agents, and directors of the company after the same had been organized and registered, were wholly ignorant of the actual value of the property, and well knew that they relied upon the representations made by him as to the value thereof, and, relying upon his representations, believed that the property had exposed and in sight ore bodies of the value of $7,000,000, and was worth the sum of $10,000,000.

Sixth. That after the company had been organized and registered, and after the conveyance had been made by Stratton, conveying to it all his right, title, and interest in and to the mining property described in the complaint, in consideration of the payment to him of $10,000,000, plaintiff entered into possession, and commenced mining operations thereon. That, by reason of the method by which the property had been mined by Stratton before the conveyance to the plaintiff, it was more than a year thereafter before the plaintiff had any suspicion or was able to ascertain that the mining property was not worth the sum of $10,000,000, as had been represented to it by Stratton. That it was many months before the facts in relation to the value of the property could be fully ascertained, and it was not until a short time previous to the bringing of this suit that all of the facts were fully ascertained, and the company had demonstrated that the property, at the time of sale to it, had exposed and in sight ore bodies to the value of not more than $2,000,000, and was not worth more than the sum of $4,000,000. That upon investigation the plaintiff ascertained that for the purpose of sustaining the allegations made to the promoters and organizers of the company before its organization, and, after its organization and registration, to the officers, agents, and directors of the same, that the property had exposed and in sight ore bodies to the value of $7,000,000, and was reasonably worth the sum of $10,000,000, Stratton had caused the same to be examined, and an estimate made of its value and of the amount disclosed in said property at that time, and in making such examination of the property the same had not been honestly and fairly done, so as to show the actual value of ore disclosed therein, but the agents and representatives of Stratton, in making the examination, for the purpose of deceiving and defrauding the plaintiff, caused the samples taken from the mine to be salted, so that the estimate of the ore contained in the mine was fraudulently enlarged, and the report based thereon was fraudulent and misleading, and that this fraudulent and misleading report was presented to the promoters and organizers of plaintiff company prior to organization, and to its officers, agents, and directors after organization.

Seventh. That, by reason of the matters set forth in the complaint, the plaintiff had been damaged in the sum of $6,000,000, for which it asks judgment.

Eighth. That Stratton died on the 14th of September, 1902, leaving as his sole heir I. Harry Stratton, and that he also left a last will and testament, which named Carl S. Chamberlain, D. H. Rice, and Tyson S. Dines as executors of his estate, and it also named the defendants D. H. Rice, Moses Hallett, and Tyson S. Dines as trustees of his estate for certain purposes set forth in said will, and that afterwards, on the 29th of December, 1902, the county court of El Paso county (the same being the county in which Stratton died), being a court which, under the laws of the state of Colorado, had probate jurisdiction over his estate, admitted the will to probate, and appointed the defendants Chamberlain, Rice, and Dines as executors thereof, in accordance with the provisions of the will, and all of the property, real, personal, and mixed, which belonged to Stratton in his lifetime, has descended to, and is now and hereafter will be in possession of, one or more of the defendants just named.

To this complaint the defendants Carl S. Chamberlain (named in the complaint as Earl S. Chamberlain), D. H. Rice, and Tyson S. Dines on the 13th day of November, 1903, filed an answer, setting out therein six defenses to the cause of action stated in the plaintiff's complaint.

The first defense is a general denial, and is not demurred to.

The second defense admits that on the 27th day of April, 1899 Stratton was owner of the mining property described in the complaint. It then alleges: That on that day Stratton agreed to the organization of a corporation for the purpose of taking over the mining property in consideration of the shares of its capital to be allotted and issued to him. That he made and entered into a certain agreement in writing with one George Butcher, whereby it was agreed to register and incorporate a company with limited liability under the British companies act, with capital of L1,100,000, divided into 1,100,000 ordinary shares, of L1 each, for the purpose...